Last Thursday I took part in an unusual Open Day on the Trans-Pacific Partnership Agreement in Kuala Lumpur.
A thousand people turned up at the event, showing how this trade agreement has aroused great public interest and concern.
The organiser of the half day event was the Ministry of International Trade and Industry (MITI), which had been criticised by several citizen groups as not revealing enough information about the TPPA.
It was unusual because the Trade Minister Datuk Seri Mustapa Mohamed spoke frankly of a “trust deficit” on TPPA between MITI and the public.
Rumor has it that China is set to accelerate the de-regulation of its financial system.
China is “too big to fail.” Nobody in the world can afford for financial liberalization to fail there.
For years, China has restricted the ability of its residents and foreign investors to pull and push their money in and out of the country.
While that may be illiberal, there was a sound reason for this restriction: Every emerging market that has scrapped these regulations has had a major financial crisis and subsequent trouble with growth.
Some months ago it became known that Federal Reserve Chairman Ben Bernanke was likely to step down as the end of his second term of appointment drew near. Initially, Federal Reserve Vice-Chair Janet Yellen appeared the favorite to succeed Bernanke, but now it seems as though Larry Summers has become the Obama administration’s preferred candidate. Summers’ candidacy raises grave political and policy concerns.
The case for Larry Summers rests on claims that he is a seasoned, crisis-tested, and known policy maker. His experience includes a stint as treasury secretary in the late 1990s and a stint as director of the National Economic Council from 2009-2011, where he oversaw the stimulus and recovery program. He is also a known quantity on Wall Street, where he has earned millions in speaking and consulting fees. Add in his academic credentials as an economics professor at Harvard, and Summers appears to be a model candidate – experienced in government and trusted by financial markets.
But digging deeper, the flaws begin to show. Many critics have pointed out that Summers led the charge for financial deregulation in the 1990s. Worse yet, he opposed updating regulation to deal with financial innovation, as exemplified by his opposition to derivatives regulation in 1998.
Larry Summers, campaigning to become the next Chairman of the Federal Reserve Board, has a rap sheet that would make Anthony Wiener blush. In the 1990s he led the charge for the deregulations that contributed to the financial crisis. In the 2000s, willfully blind to the growing systemic risk metastasizing throughout the banking system, he became a very well-paid consort of the financial sector (firms over which the Fed Chair is the ultimate supervisor). With lines on his resume like “Enron Advocate,” and “villain of the Asian Financial Crisis,” Summers has a vast and remarkably robust reservoir of self-confidence, but no practical experience in central banking, a notable detail given that Fed Chair is not an entry-level position.
At the Clinton Treasury Department, Summers was the enthusiast of the rapidly growing, largely unsupervised, and enormously profitable markets in financial derivatives. Brushing aside reports from the Government Accountability Office that raised concerns about the risks inherent in such markets, Summers browbeat into submission subordinates who shared them instead of embracing regulatory reforms that might catch up with new developments. Working in concert with libertarian Svengali Alan Greenspan at the Fed, and friend-of-finance Senator Phil Gramm of Texas, he championed the Commodity Futures Modernization Act, which prohibited the government from regulating derivatives markets—including of course, the credit-default swaps that would play a central role in the 2007-2008 financial crisis. Before the crisis Summers boasted of this fiasco as “one of his great achievements as Secretary of the Treasury.”
During his ill-fated Presidency of Harvard University from 2001 to 2006, Summers’ enthusiasm for financial exotica never flagged. People still debate whether he is to blame for the reckless bets on interest rate swaps that cost Harvard’s endowment a fortune, but his continued cheerleading for the geniuses who had mastered a brave new world of riskless finance is beyond doubt. In 2005, when Raghuram Rajan, chief economist of the IMF, presented a paper that raised cautious concerns about the stability of the financial system, Summers led a chorus of cat-calls from the business-class seats. “We should not be lulled into complacency by a long period of calm,” Rajan argued. With a “myriad of complex claims written on the same underlying real asset,” small problems could quickly get out of hand, and “may create a greater (albeit still small) probability of a catastrophic meltdown.” He proposed some modest reforms. Summers derided the paper as “misguided” and dismissed Rajan as a Luddite.
This week Paul Krugman used his influential column in the New York Times (NYT) to draw comparisons between the fiscal crises in Greece and Detroit (USA). In the essay, Krugman highlights the rhetorical parallels between the two crises. He argues that “deficit hawks” are misusing the Greek and now the Detroit crises in their continued efforts to lay the blame for fiscal crises anywhere and everywhere on fiscal profligacy and bloated public sectors. He is of course quite right about the misdiagnoses of these crises and the underlying political economy of the attack on the public sector. (Though note that his emphasis on the “Schumpeterian aspects” of the Detroit and the Greek crisis really misses the point insofar as they involve far more than the failure of policymakers to adapt to inevitable changes in competitive advantage.)
There is much more to be said about the Detroit crisis. The sad fact of the matter is that Detroit suffers today from international trade and international financial policies of the past two decades that Krugman himself, and indeed many other leading international economists embraced. It was not so long ago that leading international economists, Krugman included, advocated strongly for the North American Free Trade Agreement (NAFTA), the WTO, and just about ever other neo-liberal international agreement that came down the pike. At the time the champions of neoliberalism ridiculed anyone who raised virtually any concerns about the agreements. Labor and human rights advocates, environmentalists and child’s rights advocates were branded as well meaning but ignorant, sanctimonious, or simply self-interested.
Triple Crisis collaborators at the Global Development and Environment Institute (GDAE) at Tufts University seek a full-time Researcher with the institute’s Globalization and Sustainable Development Program. The main project of GDAE’s Research and Policy Program focuses on International Investment Agreements and Sustainable Development, with priority research on the food crisis and agricultural development, investment agreements and sustainable resource management, and the growing social, economic, and environmental impact of China and other emerging economies on Latin America. This is a wonderful opportunity for a researcher with an advanced degree in economics or a related field and with strong communications skills. The position is based at the institute’s office in Medford, Massachusetts.
See the full job description. To apply through Tufts University’s Human Resources system, click this link. Tufts is an equal opportunity employer, and the institute encourages people of color to apply for listed openings.
The big news this week is that Detroit filed, or tried to, for bankruptcy. Some have compared the Motor City crisis to the European, and in particular Greek, crisis. And in the essential that is fine. Detroit is, like Greece has become, a sub-unit of a larger entity and does not control monetary policy. But the analogy does not help much in understanding the difficulties in Detroit.
There is an important difference that has always been part of the discussion of the European crisis, and that is that if you are unemployed in Michigan you get Federal unemployment insurance, and a series of other federal funds support the less privileged. Fiscal transfers are relatively large, and certainly larger than intra-European transfers. According to the Tax Foundation in 2011, federal aid corresponded to 36.4% of the Michigan revenues [not the highest, by the way, which was Mississippi with 49%].
.